As previously reported, the Tax Cuts and Jobs Act (the Act), was passed by both the House and Senate on December 20, 2017, and . The Act includes several significant changes that are relevant to employers for payroll, employment tax, and employee benefits purposes. The changes were generally effective on January 1, 2018.
The Act repeals the deduction for personal exemptions, which for 2017 was $4,050 per individual (i.e., employee, spouse, dependents). The number of personal exemptions has been a key factor in withholding calculations. Employees establish withholding allowances on Forms W-4, based in part on the number of personal exemptions that they expect to report on their income tax returns.
A pressing question was whether employees would be required to submit a new Form W-4 as a result of the elimination of personal exemptions under the Act. On December 26, 2017, the Internal Revenue Service (IRS) made a statement indicating that employees would not need to submit a new Form W-4.
"The IRS is working to develop withholding guidance to implement the tax reform bill signed into law on December 22. We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February. The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time.
Use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February. In the meantime, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems."
For a copy of the IRS announcement, click on the link provided below.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.
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Updated on January 5, 2018